Moral Hazards Only For Thee
As we’ve been told for years, the devastating impact on the economy if Uncle Jim gets a wee principal reduction on his Riverside McMansion would last for decades, while perpetually bailing out people who love to light money on fire is the secret to strengthening modern capitalism.
I believe the theory is the same as the one that holds that money causes rich people to work harder but causes poor people to stop working. And then there’s the cousin of this logic — a schoolteacher or civil servant in major urban area making $55,000 a year is living in unimaginable luxury, but someone making $400,000 a year is living a hardscrabble lower-middle-class existence and needs to be bailed out with huge tax cuts pronto.
The fault lies, not with “The Job Creators (all kneel),” but with the jobless (all spit).
After 30+ years of the “Laffer Curve,” nobodies laughing.
And nothing’s tricking down because these people wouldn’t even piss on us to help put it out if we were on fire. Why waste good, rich, piss?
But, LOOK!
Over there – a brown or gay person wants the same right’s as a white man.
They must be CRUSHED!
Vote Republican, and let your foot join the feet of your betters as you help apply boots to the necks of these undeserving untermenschen – and you’ll be rewarded.
SUCKERS!!!
The bailout was a Keynesian response to the possibility of struggling financial institutions stifling the velocity of money and causing the bottom to fall out of aggregate demand.
Am I to surmise that you are now a member of the moralizing “pain caucus”, or do you just like to support the parts of mainstream, technocratic, Keynesian economic management of economic aggregate management that don’t seem opposed to progressive populism?
The bailout was most definitely unKeynesian and was, in fact, Friedmanian.
Thank you!
but Uncle Miltie expounded freeing money over freeing people making him the second greatest economist ever. He comes in second because he exposed his ideas on PBS rather than in a comic
So after all that we have seen about Brad hating Keynesianism, he finally decisively proves that he does not understand Keynes at all.
This is the best Festivus gift I could ever ask for.
There was ever any doubt of that? Frankly, I am at a bit of a loss to think of anything he does understand.
I’m wondering if he will ever admit the massive gaffe he made here, or just stop responding in this thread in the hopes that everyone will forget his bullshit once more?
My money is on the latter…
My money is also on the latter, or that he will abruptly change the subject or shift the goal posts, which is what he always does when I confront him with data.
I didn’t say, by the way, that I opposed the bailout per se, only that I don’t understand why homeowners weren’t also bailed out.
Fair enough. My response was inappropriately directed at you then.
The bailout should have required stakeholders to take a major haircut and institutions to replace their management and accept tighter regulations, as should pretty much everything else that’s been done for the big banks since. The real issue is not the bailout so much as that the Fed and Treasury have been shoveling free money at these corrupt assholes without using that leverage to compel acceptable behavior.
Yeah. The banks were lending at 30 to 1 odds and we’re supposed to blame the working people who believed what the bankers told them. The bankers needed much more than a haircut— they needed to get their asses paddled so hard on their way out of their shiny offices that they would no longer be occupying that the sting would follow them wherever they went.
Scott! Burning money only forces the Fed to print more money which increases the velocity of money which creates growth in the money supply which is good for working class Americans!
Ironically, this is the caricature conservatives lay on liberals when people like Krugman espouse the stimulatory nature of disasters and wars.
See the Broken Window Fallacy.
Krugman doesn’t espouse disaster and war as stimuli, he says that preparations anticipating threats that don’t materialize would be stimulative.
Yes, but Brad has his Econ 101 textbook, and he’s sticking to it.
Maybe, since Brad is about as dumb as a footstool, but not as useful, instead of reading “Economics 101,” he should start of with “Ergonomics 101.”
You know, to see how he fits into things.
It might help his cognitive abilities enough to then crack Econ 101.
The book really is worth reading, if only to see what kind of economics textbook Abe Simpson would write, if he decided to write an economics textbook. I found it helpful to write “PS I am not an crank” in the margins several times. Alas, I lost my copy to a basement flood a few months ago, and decided that Hazlitt was simply not worth replacing. Given his chapter on Broken Windows, I can only imagine he would agree.
I think the Broken Window Fallacy is overstated by conservatives. There can certainly be gaps in productive capacity, and in theory anything that draws that potential out would be stimulative.
I just think the government does more damage with the dollars it spends than it helps, as it repeatedly shows in history when the government responds to some sort of crisis.
Damn the Triple C and their roads, parks, and bridges! Damn them all to hell!
There you go, Mal, bullying Brad with your facts and sarcasm!
How’s that conservative dick tastin’ today, brad. Every time I read your post I see, “Mmmm. Mmmm. This dick is good! I’d pay taxes just to suck this dick— just as long as the producers get it and not those lazy workers who would die without an operation they can’t afford.“
Yes, wasteful production is always stimulative, and I am well aware the Paul Krugman thinks that lying to the public about an impending alien invasion would be good economic policy.
Nevertheless:
And OT, but I can’t quote that article without also quoting the following hilarity:
Good news: We can use this to push our agenda!
Bad news: Some jerk may be able to use it to push their agenda.
Yes, and in the link I provided he mentions that WWII provided econominc benefits. However, “espouse” is defined in my dictionary as “to make one’s own; adopt or embrace, as a cause.” A column published on Sept. 14, 2001 (that’s the link for the quotes you provided), “ask[ing] about the economic aftershocks” resulting from that week’s attacks doesn’t fit the definition. Do you have anything where he actually advocates disaster-as-stimulus rather than simply searching for potential benefits in events that have already occurred?
“Advocates disaster-as-stimulus rather than simply search
inges,” I mean. *Shakes fist*I think we can all agree: looking at actual events makes Krugman History’s Greatest Monster.
Well, using actual data is anathema to libertarians.
I’m sorry if my wording isn’t clear, but when I say “espouse the stimulatory nature of disaster and war” I mean “supports the idea that war and disaster is stimulatory”. I did not imply that Keynesians or Krugman supports war and disaster as stimulus.
Again, my intent was to point out the irony of the post about burning money.
I did not imply that Keynesians or Krugman supports war and disaster as stimulus.
Yes. Yes you did. In this very thread.
I mean, fair enough, you did not so much imply that Krugman espouses disaster as stimulus, but rather you stated it, clearly and without ambiguity. Did you forget?
Again, my intent was to point out the irony of the post about burning money.
Except, as any barely competent economist could tell you, money is not the same thing as capital. The Broken Windows issue is about wasting productive capability, i.e. capital, not money.
money is not the same thing as capital
Not knowing this and instead assuming that economics and finance both use the same definition of “capital” is a major tell.
And yet, it better applies to conservatives, who actually believe my snark. And the broken window fallacy.
To answer this question without the misplaced nastiness in my last comment, the banks that were bailed out have become over the decades a semi-public extension of our central bank.
Like it or not, the big banks in the US are not petitioners for government favor, but a de facto branch of the government. Homeowners are not and will never be treated similarly.
And it is not conservatism or liberalism, it is an accepted necessity out of both Keynesians and monetarists, and anyone who tends to accept mainstream economics and government management of the money supply is crying crocodile tears when they bemoan the favoritism extended towards big banks.
I have two issues with the bank bailout: first, that something like a real cramdown plan or something else that would have bailed out homeowners was never seriously considered; and, second, that the people who mismanaged the banks into our crisis were, by and large, not only left in place but rewarded.
Bailing out the banks themselves was necessary to keep the entire financial system from collapsing and, from a Keynsian perspective, did probably stimulate the economy (though I suspect in a very inefficient manner, just like upper-class tax cuts are), The method chosen to bail out the banks, though, strikes me as problematic.
Notice, too, that Atrios is criticising bailing out the “people” that love to light money on fire, not bailing out the banks per se.
As Atrios has said a bunch of times, bail out the banks. Then inform the people who ran them into the ground that their services will no longer be required and give them ten minutes to put their personal belongings into a cardboard box.
You know, if people didn’t know you better, they just might believe you knew wtf you’re talking about.
But, we here, know better.
Brad, Keynesianists were calling, very explicitly, for bank nationalization. “Zombie banks” was something that actual Keynesians, like Krugman, Reich, DeLong, and Quiggin, were screaming loudly about. Now, I do realize that the StrawKeynesians in your head called for bank bailouts, but they really don’t count.
They were calling for temporary nationalization, or as some termed it “preprivatization”.
Krugman:
http://www.nytimes.com/2009/02/23/opinion/23krugman.html
Thank you for admitting that Keynesians were calling for nationalization, which would liquidate the current shareholders, and look nothing at all like what actually happened. How many comments upthread shall I assume you retract?
That would be absolutely none, as Brad never admits error and cannot admit that his beloved Austrians have been wrong about pretty much everything for about a century.
I have admitted error on several occasions.
I would also like to point out that, since I am one of the few commenters who come here in disagreement and actually puts their opinion to the test, you are in no position to question another’s propensity to admit error.
Maybe I should take the DrDick path to virtue and bully liberals who venture into Reason.
Sane people never venture to that site.
but as you lie in Montana, I must question your sanity. South Dakota is much better
I reside in the People’s Republic of Missoula, an island of sanity amidst a sea of libertarians and assorted other far right lunatics. Besides, I have been to South Dakota and you could not pay me to return.
We generally, and I in particular, have repeatedly rebutted your assertions with data and facts. Whenever I engage you in that way, you either simply ignore my points or change the subject. I for one have largely given up on attempting to reason with you because of your responses.
I have admitted error on several occasions.
So how many of your comments above have you retracted? Or can I safely assume you won’t bother to answer?
I would also like to point out that, since I am one of the few commenters who come here in disagreement…
Cthulhu knows JFL and I never disagree. Nope, only Brave Truthteller Brad, martyr to discredited economic theories.
And speaking of Brave Truthtellers…
Several points, Mal:
1. Nationalization is not the only possible Keynesian response. Earlier in that article Krugman turns to nationalization because the government would be spending so much bailing out the banks that it might as well get ownership:
2. The nationalization recommended by Keynesian certainly doesn’t counter the point that banks are quasi-public institutions that will get preferential treatment not afforded to others under any mainstream political economic system.
Dear Cthulhu, Brad, Krugman advocated nationalization to avoid bailing out existing shareholders. This is really painfully clear to any non-insane person who understands basic written English. What word have you now secretly redefined so that you are not understanding this?
Nice to see Brad affirming my point above.
As did Alan Greenspan and Lindsey Graham.
Temporary nationalization does nothing to change this:
Even if you are wiping out shareholders. When these bank shareholders have the prices marked down to what they are actually worth and take their loss like they should, the bank will be sold back to the same group of superwealthy investors as the government-privileged, guaranteed usury profit money machines that they are and are supposed to be.
As noted lefty Keynesian Nouriel Roubini (that’s a joke) noted when arguing for nationalization:
Roubini, Greenspan, and the Keynesian’s you mentioned all support temporary nationalization because shareholders who aren’t willing to accept their losses are making for weak banks, not because of some moralization against bankers.
As Greg Mankiw said:
If the government is to intervene in a big way to fix the banking system, “nationalization” is the wrong word because it suggests the wrong endgame. If banks are as insolvent as some analysts claim, then the goal should be a massive reorganization of these financial institutions. Some might call it nationalization, but more accurately it would be a type of bankruptcy procedure.
You can keep pretending that sending big banks through a process like the FDIC would be a big strike against bank influence on policy, but you would continue to be devastatingly wrong.
You seem to be forgetting that, under nationalization, the “same group of superwealthy investors” will have had their wealth seriously diminished, which is exactly what did not happen under the bailout. But keep pretending that wiping out shareholders is exactly the same as keeping them whole no matter what. You may find some people that believe this. At the least, you will keep convincing yourself.
Like it or not
See, Bradley, we like it not.
That’s kind of the entire point.
It is not even about whether or not we like it. It is rather that it is simply untrue.
Errrrrrrrr, uhhhhhhhhhh, Brad?
You, um, DO realize the Federal Reserve is a *private* bank.
Owned by, ummmmmmmmm, the same banks that it bailed out.
Right? I want to make sure you’re clear on this, because if you’re not, you can’t appreciate the slapstick nature of the joke you just made.
Oh. You weren’t making a joke….
Do you share Lemieux’s curiosity as to why the banks received bailouts that homeowners do not?
Why should I? The banks were bailed out by the Freidmanites. The homeowner bailout should rightly have come from the administration, via Congress, which it did not.
In short, I understand why one was bailed out and not the other. And I’m angry about it.
But you DO see now why your line of logic is so far off the mark?
I think Lemieux’s curiosity is rhetorical, and that you seem to be missing the point.
Missing the point is rather Brad’s whole point.
Indeed, it is in fact central to his point.
Whenever I see BradP’s name, I ask myself “What’s the point?”
And I realize that there isn’t one.
Not ever…
Don’t forget the theory that holds that the poor in the US must judge their standard of living against the average citizen of say, Bangladesh while the wealthy in the US must judge their standard against…well, I’m drawing a blank.
How much it costs to live in the swankiest sections of Manhattan or Beverly Hills.
It would be nice if they’d just admit that they’re pathetic, not good at living, and only good at making money (or, usually, keeping money they inherited), and so are entirely too limited in mind and experience to be telling anyone else how they’re doing or what they need.
They are also rather obviously not very good at those things either, as most of them would be bankrupt if not for the federal bailouts.
The world is made up of real people and spear carriers. “Spear carriers,”
you know, are those people in the opera who don’t sing, but just stand around holding props, being props themselves. In Star Trek, they wear red shirts and get killed on hostile planets, while the series regulars, of course, survive.
Real people have a hard time getting by on a mere $400,000 per year; spear carriers who get $55,000 per year or even less nevertheless are getting more than they need or deserve, because they are not actually characters, only props.
Those of us who are spear carriers need to learn our place.
Spear carriers? I believe the PC term is Morlocks.
Morlocks eat Eloi…
In fairness to opera singers and Captain Kirk I’m p. sure they do a fuckton more of actual value than our capitalist overlords.
Well, at least opera singers.
Given the comparison there, even Capt. Kirk delivers greater value.
Mal, (or anyone else who wants to) do you have any book recommendations for someone who wants to know more about economics (as broad as that is) but has no real clue of where to start? Also that someone doesn’t know much of anything currently, and also that someone is me. :)
Heilbroner, The Worldly Philosophers. Start here. Everybody should read this book.
Buchhold, New Ideas from Dead Economists.
Keynes, General Theory. Dense and slow-going, but well worth the read.
Marx, Communist Manifesto, section 1 (with the notable exception of the inevitability of revolution, Marx got much of this right).
If you go this route, Capital, especially Volume 1.
The Hazlitt book linked above is a good popularization of the insane school of economics to which Brad subscribes.
I know there are better books on money than Simmel’s Philosophy of Money, but I drank tasty Belgian beer this evening, and any more modern titles on this subject are eluding me.
I have heard good things about David Graeber’s Debt, and deeply hope to find that under the tree in three days.
I also hope to find Quiggin’s Zombie Economics.
For these purposes I would also suggest Doug Henwood’a Wall Street.
I can second Graeber, Quiggin, and Henwood. And The Old Bearded Guy Who Lived in London, of course.
More advanced: Philip Mirowski, More Heat Than Light and Machine Dreams about physics and game theory as models for 19th and 20th C economics respectively.
Michael Hudson, Global Fracture is great on US “debt imperialism.”
Giovanni Arrighi, The Long Twentieth Century is in the Wallerstein “world systems theory” tradition. I haven’t read his Adam Smith in Beijing yet, but definitely want to.
In “behavioral economics,” you want Moral Sentiments and Material Interests, edited by Herbert Gintis and Samuel Bowles, who were chased out of Harvard and ended up at U Mass Amherst. Includes a nice essay by Elinor Ostrom, whose Governing the Commons is a classic, destroying the Garret Hardin “tragedy of the commons” thing used as ideological cover for privatization.
i also like Adam’s Fallacy from Duncan Foley, Ha Joon Chang’s Bad Samaritan’s, Ecological Economics by Herman Daly, Veblen in Plain English by Ken McCormick and other Veblen, Stabilizing an Unstable Economy by Hyman Minsky
I should add Steve Keen’s Debunking Economics and Dean Baker’s books, The Conservative Nanny State and The End of Loser Liberalism: Making Markets Progressive both of which can be downloaded for free from here http://www.deanbaker.net/index.php/home/books
I am now slapping myself for forgetting about Veblen.
While Hardin has been used for libertarian purposes, there’s a lot of valuable insight in the piece and Ostrom, I think, has built on it rather than destroyed it. Certainly, if you read Hardin in his narrowest sense as saying the commons always lead to tragedy, then Ostrom undermines him, but I think it’s better to read Ostrom as pointing out how groups have solved the very real problems Hardin points to.
It’s also rather odd that Hardin has been used to justify privatization and other libertarian goals. His original conception of the tragedy of the commons was overpopulation and his offered solution was that governments should restrict by law how many children individuals should have. I think it is fair to say that Ostrom demonstrated that you don’t necessarily need Leviathan to solve problems of the commons, instead pointing to how small groups can do so themselves.
In that sense, one could claim that Ostrom’s work is more supportive of libertarianism than Hardin’s, but I don’t think that is really a good reading of Ostrom.
Sure, there are complex relations at work here. But the surface reading of Hardin is that you have only two choices to avoid the tragedy, Big States or private ownership. So you’re right that Ostrom shows the tertium non datur to that opposition.
The real problem for me with Hardin is his assumption of rational egoism. What I like about Graeber, for instance, is showing how anthropologists can easily show that rational egoism is a contested feature of humans. That is, that all sorts of egalitarian societies are perfectly aware of it as a potential to be avoided, while primitive accumulation theories show that you have to destroy egalitarian structures in order to create the conditions for rational egoism to be, well, “rational.”
A point that I, as an anthropologist, have vainly been trying to teach Brad forever.
It’s your own Sisyphean burden!
The point would work better at the end of a stick.
Heilbroner is fantastic and readable.
On a related note, anyone have recommendations for intro Micro and Macro texts? I’ve actually always liked Mankiw, but his turn to hackdom makes it difficult to recommend the book to a lot of people.
Paul Samuelson (yea, him) is a Keynesian macro guy and pretty readable. Also Robert Solow. If you feel up to it, go read Keynes himself (Gen’l Theory of Employment etc)
Naturally, you’ll want to read Mankiw anyway, since you’ll want to understand Friedmanomics.
Micro is a really hard field to find an easily read book, since most microeconomists end up resorting to calculus and especially derivatives to strip away larger factors that influence personal decisions.
But…I liked Freakonomics because it presents microeconomics in every day life in situations that have nothing to do with finances. In other words, you get a flavor of the theory without doing much math.
If you’re still up for a go at it, try David Colander. I think he’s still the textbook of choice in colleges.
I’d go with Yoram Bauman’s cartoon introductions to economics. They’re less cartoony than Freakonomics, which seems to me primarily Beckerite nonsense
The Amazon wishlist just got a bit longer. Thanks to everyone who responded to JAtheist.
Definitely. I guess we’ll have lots of books to reign in the New Year with.
Thanks everyone!
Actually, Adam Smith’s Wealth of Nations is not bad at outlining the environment economics operates in, and if you can grab a study guide to read along with it (because the language is after all, four centuries dead), you can learn a lot about general economics, and how Smith tries to solve some of the exogenous factors involved (like government oversight and taxation).
Also too, it’s nice to be able to explain to conservatives why advocating the starkest laissez-faire and mooing the phrase “invisible hand” doesn’t make one a Smithian. Although fewer of the herd seem to be invoking Smith these days; has Glenn Beck renounced him as a socialist or something?
S.A. Amadae, Rationalizing Capitalist Democracy (Chicago, 2003), is very good on how 20th public choice types like James Buchanan appropriated Smith for their rational egoism position by cutting out all the moral sentiment / sympathy bits.
As most economics explicitly excludes the whole worker part of the equation, and this started with Smith, it’s difficult to say Smith does a good job outlining the environment economics operates in.
which reminds me I shoud have added some Michael Perelman, such as
The Invisible Handcuffs of Capitalism and
The Confiscation of Economic Prosperity
Really? So he didn’t create “exchange value”? I thought it was him, not Ricardo.
exchange value leads one to conceptualize workers as just another input to the machine and to therefore not care about working conditions, worker health etc., except insofar as they alter the exchange value
Except, of course, that it does recognize labor’s value to the product. That’s a lot more than many corporations do now.
I’m not here to defend Smith’s writings, beyond presenting a good overview of economic environments. Employers have always viewed employees as less than equal. Smith surely helped concretize that idea, but he was not the real villian in dehumanizing the workplace. Remember, his idea of a workplace was a small shop or factory, one where the boss took personal responsibility for the product. Implicit in that view is that the employees would be treated better than cogs.
but the whole concept of division of labor is to make labor cogs.
Just because employers have viewed employees as something is no reason for economists to do so.
By viewing labor primarily through it’s input cost, the natural desire to lower costs is detrimental to labor.
I’m probably not doing the argument as well as Perelman does in Invisible Handcuffs, so please read it there. Or some of it is here
http://books.google.com/books?id=xWCmruAZfbYC&pg=PA149&lpg=PA149&dq=perelman+handcuffs+adam+smith&source=bl&ots=_0jxJ-QTfS&sig=iUC-lDjqL7Bfrm7GOrP3X4fDtR0&hl=en&sa=X&ei=_-P0TsCjB4_1gAfEydSuAg&ved=0CEAQ6AEwAg#v=onepage&q&f=false
Back to this remark in Scott Lemieux’s original post:
“I believe the theory is the same as the one that holds that money causes rich people to work harder but causes poor people to stop working.”
That’s right. And I will maintain that you can trace this line of thinking back to a firebrand of the Reformation: John Calvin. Being rich is glorious and shows you’ve been favored by God; being poor means you’re being punished by the Almighty.
That wouldn’t mean much except that Calvinism is at the core of many American Protestant denominations, and from there has permeated the entire society.
One more reason to take religion seriously as a social phenomenon whether or not you have any religious inclinations yourself.
“I believe the theory is the same as the one that holds that money causes rich people to work harder but causes poor people to stop working”
I am white. When I was a child I live in an area that had a lot of people on welfare. My family was one of theme from time to time. So I do have some experiences in this. In the 1950s and 60s when a person got on welfare they could not work even if they were healthy. If you worked even if it was not enough to keep you alive you lost your welfare. If a family had a husband at home they lost the welfare. So what happened the husband left home but the wife kept having kids and drawing more welfare. Soon they did not even bother to get married to have kids. In fact some men had harems which they kept pregnant and collected the welfare check.
In the 60s when the law changed so that all people including those on welfare could vote, the democrats in congress then started pushing “benefits” for these people. Food, medical, spending money etc the only thing is that could not work if they received it. Unless I mis-remember James Meredith who integrated Ole Miss said that the democrats were enslaving the black man with their welfare. The enslaving did not stop with the black man it included all.
So, yes, The statement is almost true. It should have been said that the man that works hard and smart will become rich. The poor on hand who continues to receives handouts whether from the government from other sources (the money they receive) stops them from working.
Man, that started out so promising… and then it devolved into wingnuttery so fast…
In fact some men had harems which they kept pregnant and collected the welfare check.
Dr Freud, white courtesy phone. Paging Dr Freud.
In the 60s when the law changed so that all people including those on welfare could vote
My gob is smacked.
We now see the tragic results of what happens when our Conservative Teacher troll teaches history…